Like dominoes, the effects from convulsions in the US financial system will begin unraveling and regulators, investors and market players are hoping there will be more pieces left standing than those that are toppled over.
Late breaking news that the Federal Reserve is now considering providing a bailout package for American International Group is providing a soothing balm to Wall Street, especially after the company was downgraded yesterday by major ratings agencies. We will know more as the day unfolds whether the “unnamed source” in Bloomberg’s report has just given markets an early Christmas gift.
Because Lehman Brothers, Merrill Lynch and AIG are all complex financial companies, the reckoning may take months, not days. AIG’s dilemma, in particular, has had everyone’s knickers in a twist because its demise will hit every big Wall Street name and is expected to have huge ramifications all over the world. Government economic managers are largely expected to talk about this issue during their mid-year economic briefing at the Shangri-la Plaza in Makati at 10 a.m. today.
So far, three local firms, Banco de Oro, Metropolitan Bank and Trust Co. and Sunlife have disclosed Tuesday they have set aside provisions to protect them from their exposure to Lehman. The Bangko Sentral ng Pilipinas, the Philippine central bank, is ready to pump liquidity into any bank with exposure to Lehman, but does not expect local banks to be significantly hit.
State pension funds Government Service Insurance System and the Social Security System have also been asked to disclose their exposure to the Lehman, Merrill and AIG. Any exposure of the pension funds, especially GSIS, which announced early this year it was going to invest globally, could be potentially alarming for ordinary Filipino workers.
Philamlife, the 100-percent owned local company of AIG, has issued official statements to the media that it is well capitalized and can service any claims from its plan holders—a statement that was echoed by government regulator Insurance Commission.
“While AIG is our parent company, we are separately capitalized, we have the largest and the most stringent capital base in the industry, our investment funds are separate, the funds managed by PAMI are separate and the US operations have absolutely no impact on Philippine operations,” said Joey L. Cuisia, president and chief executive officer of Philamlife in a television interview at ANC.Based on official financial figures from Philamlife’s website, it’s consolidated assets in 2007 was at P170 billion, it paid out P6.6 billion in benefits during the same year. Its life insurance in force is at P391.8 billion. Its market share as of 2006 is 24.6 percent in terms of premiums, 31.9 percent in terms of assets and 33.6 percent in terms of total investments. Bandying billions of funds in capitalization, however, still kept investors everywhere, not just in the Philippines, wondering if these funds will be enough under a worst-case scenario. The New York Times and CNN have informative question and answer articles for plan holders and investors worried about their policies. Unfortunately, the Philippines does not have a PDIC for insurance policies, the way they do in the US. When I get my interview with regulators, I will update you on that. For now, even ordinary Filipinos without a Philamlife policy or investment are advised to be wise to save more, spend less, err on the side of caution but stay the course and keep a long-term perspective, as the macroeconomic fundamentals domino pieces will get jarred again and again by convulsions in stock, currency and debt markets. The ADB is expecting Asian economies to get badly hit until 2009. However, you've also got the International Monetary Fund (IMF) saying Lehman, Merrill and AIG's woes are all part of a restructuring in the financial system and once the uncertainty over exposures such as theirs are all worked out, we'll all see a healthier Wall Street and American economy. I've seen other experts being quoted in BBC and Bloomberg, saying these are all positive in the long-run, but no mistake about it, the restructuring will come with much pain. At times like these, when a lot of the shrillness in the market will result in babies being thrown out with the bathwater, some experts say buying opportunities abound. As agreenspan says: We are all in a serious situation, and there is no place for sugar-coating here. Let us not get crippled by fear, but let’s also not hide under a rock and hope everything will be the same when we emerge. Meanwhile, the earth is still revolving, and we know that good ol' Oprah has decided to manage Charice's US career! Weee! (Humor is good for the soul and no I am not really a fan hehe). UP NEXT: Your Philam questions answered
